Tariff or Tax Credit


In a recent article from Money and Markets entitled “Fed: Tariffs Will Cost Average Family $831 More in 2019”, the argument was made that after the latest increase from 10% to 25% on $200 billion in tariffs on Chinese goods, the average U.S. family will pay $831 more a year for the same goods they bought last year. What the article didn’t include was the next round of tariffs on Mexican goods. Also not factored in is the rising costs of goods and services as a general result of inflation here in the United States. Indeed no one needs to remind you of the sudden increase is gasoline which pushed close to four dollars or more per gallon in recent months. This also means the approximate 6000 other things made out of petroleum will also likely go up in price.  

The average American family is having a hard enough time making ends meet and the challenging effects of increasing prices undoubtedly put more strain on some families.

Tariffs are fees put on incoming goods coming from countries outside the U.S. under the auspices of protecting the American business counterpart of whatever it is you’re applying the tariff to, and/or punishing the other country for some egregious act or violation, as the case may be.

Tariffs are not new and usually there are tariffs on a variety of imports at any one time. To the degree we are seeing them now however is something of a rarity historically.

Because the price of something in the market place is somewhat arrived at by the sum of all prices of the item with slight variances off the average price to account for local demand and conveyance, raise the price of any one major supplier of something and the price of that something will rise. Since tariff money goes to into government coffers and the consumer ends up paying the higher price, tariffs are generally believed to be ultimately paid by the consumer.

I have made the argument in a previous article that should protection of U.S. companies selling into any market where imports are sold competitively, a tax CREDIT to the U.S. company would serve the same purpose. Although tariffs raise the price of a good to the consumer and therefore make a domestic made good that much cheaper in comparison, a tax credit would enable the U.S. company to sell its product cheaper and thus better compete with the import just the same. The difference being the average cost of the good would decrease thereby lowering the cost of the item to the consumer.

I don’t hear the argument for tax credits anywhere in the media and that’s baffling. Both a tariff and a tax credit accomplish the same thing which is to punish the importer and give an advantage to the domestic producer.

As to who pays the tariff and where the money ends up is quite different thing. In the case of the tariff Washington gets the money that the consumer pays in the price increase. In the case of a tax credit, the consumer would pay less for the good and therefore have more money left over to spend on other things. In the latter, the economy would also benefit from higher consumer spending which came from the consumer having more money to spend because of the savings.

This article expresses the opinions of Marc Cuniberti and are opinions only and should not be construed or acted upon as individual investment advice. Mr. Cuniberti is an Investment Advisor Representative through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Marc can be contacted at SMC Wealth Management, 164 Maple St #1, Auburn, CA 95603 (530) 559-1214. SMC and Cambridge are not affiliated. His website is www.moneymanagementradio.com. California Insurance License # OL34249